Foreign Debts: Should Nigerians be worried?

By Emman Ovuakporie
The rising debt profile of Nigeria after the dramatic rescue achieved by the Obasanjo administration has largely remained a major source of concern to many Nigerians. The debt has continued to rise despite favourable income from crude oil sales and the rising profile of non-oil exports. Now, the House of Representatives has launched an investigation into the issue.

THE Federal Government budget for domestic debt service in 2012 is N559.6 billion (more than the budget allocation to Works, Power, Agriculture and Water Resources combined), leaving less money for infrastructure and other needs.

Remarkably, the states which also have a good chunk of the total external debt overhang are also expending a significant amount of their incomes into servicing maturing debt obligations.

The impact is that both at the federal and state levels, service delivery is increasingly being stifled by commitments made towards servicing the debt obligations. Remarkably, both the states and the federal authorities are continuing to scour for other loans to add to what many Nigerians believe is full debt profile.

It was based on this that the House Committee on Loans, Aids and Debts Management, headed by Rep. Olayinka Ajayi recently met with governors and their representatives from 12 states.

Out of the 12 invited governors, only Governors Yisa Yuguda of Bauchi and Raji Fashola of Lagos appeared personally while the remaining ten sent proxies.

The first Gov to appear was Yuguda of Bauchi State.

After his session with the committee, Yuguda told journalists that though his administration inherited a large chunk of debts, he would do everything within his reach to eliminate debts before he vacates office in 2015.

He said” we try to manage our cash flow because we inherited a lot of domestic debts; debts to unpaid contractors for road projects, and even some of the federal roads which the state took care of.”

Giving a breakdown and history of the loans in the Lagos State debt portfolio, Fashola said the state has so far obtained $600m loans but that only $200m has been released due to what he described has political coloration.

At the end of the session, Fashola simply told journalists that “hospitals and road infrastructure do not have political colour as Lagos is a place for all.”

Other Governors invited are yet to show up to defend the loans and debts they obtained on behalf of their citizens.

Govs Godswill Akpabio and Rotimi Amaechi on their part sent their representatives.

It would be recalled that as at the end of March 2012Nigeria’s debt was N6.8 trillion ($44 billion), according to the most recent data from the Debt Management Office (DMO). Out of this amount, N5.96 trillion ($38.3 billion) is domestic debt while N919 billion ($5.9 billion) is external debt.

The country’s current debt to Gross Domestic Product (GDP) ratio, at 17.45 percent, is lower than the international standard threshold for Nigeria’s peer group at 40 percent.

In 2005 Nigeria paid off most of the $30 billion external debt it owed the Paris and London clubs of creditors and in the process reduced its debt to GDP ratio from 52 percent to less than 7 percent.

The DMO in 2003 also set in motion the process to restructure Nigeria’s domestic debt portfolio, with the objective of lengthening the maturity of the instruments and deepening the government bond market.

It has also succeeded in developing a sovereign yield curve for Nigeria, through the issuance of longer tenured Federal Government (FG) bonds, which has reduced the use of ways and means to finance government deficit.